GST revenue slump hits state's finances

Newly appointed Victorian Treasurer Michael O'brien at a media conference. Photo: Jason South

The Napthine government is considering fresh spending cuts and revenue-raising measures to keep the budget in surplus after being hit with a $1.5 billion GST downgrade.

In a sign that the May 7 state budget will be more austere than first thought, it is understood a national retail slump has wiped a further $200 million from Victoria's GST share for 2013-14.

The downgrade comes on top of the GST hit triggered by changes to the federal government's formula used to carve up the GST among the states. That wiped $207 million off the budget in 2013-14, although because state Treasury had already factored in the hit, the extra cost to the budget was just $40 million.

Treasury budget calculations have factored in a $1.5 billion hit to the bottom line over the four-year budget period.

Treasurer Michael O'Brien, who is finalising his first budget, confirmed that ''difficult decisions'' would need to be made to keep Victoria's finances in the black.

''This hit is significant,'' he said. ''This means that the state budget will need to be tightly managed to ensure the fundamentals of the Victorian economy remain strong and to support further investment in job-creating infrastructure projects.

Advertisement

''The Coalition government does not want to see Victoria's budget head down the federal Labor path of debt and deficit. This will require some difficult decisions to balance our books, but we are well placed to meet these challenges.''

It is understood the Department of Treasury has offered a range of spending and revenue options to make up the shortfall. These include overhauling the land tax, payroll tax and stamp duty regimes, but the government is reluctant to pursue these options.

You will now receive updates fromAM & PM Update Newsletter

AM & PM Update Newsletter

This means it is considering inflicting further public-sector spending cuts and increases to various fees and penalties.

Governments typically play down expectations in the lead-up to budgets. But Treasury sources have confirmed that, while the budget will continue some big-ticket announcements, the GST downgrades ''will have to be countered with expenditure reductions or revenue measures in the budget''.

It follows tax and spending measures announced in the previous two budgets used to keep the budget in surplus and protect Victoria's coveted AAA credit rating, including public-sector jobs losses, cuts to TAFE funding and increases to vehicle registration and fines.

A key theme of the budget will be infrastructure, with projects including the east-west road connection and the Melbourne Metro rail tunnel to ''be progressed to varying degrees''.

The government's December 2012 update predicted the budget would be in surplus by a narrow $137 million in 2012-13, rising to $835 million in 2013-14 and to $2.6 billion by 2015-16.

But Treasury sources said national GST collections ''had fallen off a cliff'' in January and were slightly lower in February than predictions.

The increase in the expected surplus over time had led to expectations that the government was building up a war chest to unleash before the November 2014 state election.

This is still likely to be the case, although the government's policy of mostly paying for infrastructure from future surpluses rather than taking on more debt has also limited scope for major project spending announcements.

The latest GST downgrade comes on top of reductions in expected GST revenues of more than $6 billion since the 2010 election. It is understood key sources of Victorian tax revenue - land tax, payroll tax, stamp duties and gambling taxes - are on track, with the housing market showing tentative signs of recovery.